2020 has served to accelerate the growth in gig working; in fact, 70% of executives expect to use more temporary workers and freelancers two years from now. What do businesses need to consider and proactively address to be set up for success?
When Uber first went live in San Francisco in May 2010, no one could’ve imagined how instrumental the company would be in the rise of the gig economy and the paradigm shift it would trigger in the nature of the employer-employee relationship.
By the mid-2010s, the basic value proposition of many organisations was to provide “Uber for X” i.e. leveraging the economic fundamentals of the gig economy, where organisations replace full-time employees with independent workers/contingent workers/freelancers, in order to provide consumers or businesses with an on-demand service.
The coming decade will bring steady growth to the gig economy, driven by increased adoption across sectors. A recent McKinsey survey revealed that 70% of executives expect to use more temporary workers and freelancers two years from now, especially in the accommodation, food services and healthcare sector.1 Organisations will have to adapt and revise their operating model to cater to this growing segment of workers and will need to respond to the changing regulatory landscape as governments introduce legislation to protect workers.
To date, most of the employment gains in the gig economy have been among blue-collar workers and have been driven by the growth of organisations in the ridesharing, delivery, and e-commerce space. Due to limited worker rights, there has also been some backlash against the gig economy and its exploitative nature, with employment lawsuits filed against gig employers. However, today we will share why the gig economy is not only here to stay but will continue to grow exponentially over the next decade, whilst seeing increased adoption amongst white-collar workers. The gig economy of the future will look different in two primary ways:
1. Organisations will have to adapt and revise their operating model to cater to this growing segment of workers; treating the relationship as strategic rather than transactional.
2. Governments will introduce worker friendly policy changes to balance the employer-employee power dynamic.
Gig economy has established firm foundations and is now set to grow
Based on a recent report by Mastercard, the global digital gig economy generated $204B of gross volume in 2018, with the projected volume expected to reach $455B by 2023.2 Today, 36% of Americans are part of the gig economy in some capacity3 and gig workers could represent more than half of the country’s workforce by 2027.4 A similar growth story is underway in other areas of the world, with freelancing growth outpacing employment growth in the European Union.5
After the 2008 recession, corporate layoffs led to record high unemployment. Increasing globalisation, advent of technology, decentralisation of operations and changing workforce demographics modified working preferences, with organisations and individuals opting for independent work either out of choice or necessity.
Many parallels can be drawn between the 2008 recession and the current black swan event of COVID-19, where we are again seeing corporate layoffs, record high unemployment, and unprecedented disruption in where and how people work. Based on a report from McKinsey Global Institute, 87% of organisations are either experiencing a skills gap today or expect to face them in the next few years.6 In another study conducted by Boston Consulting Group (BCG) in partnership with Harvard Business School, 40% of executives said that they expected gig workers to account for an increased share of their organisation’s workforce7, but only 28% of the organisations believe that they are ready to address the changing landscape.8
The economic impact of 2020 will serve to drive increased adoption of the gig economy, particularly amongst white-collar, highly educated professionals. An excellent case-in-point here is Bosch Management Support GambH, a subsidiary of the Germany company Robert Bosch GambH, that was created to manage a 1700+ on-call contingent workforce. The on-call contingent workforce is comprised of expert resources brought in to consult on various initiatives across different functions like R&D, sales, production, finance, sales and marketing. Philips did something very similar with the launch of Philips Talent Pool. Furthermore, EY’s launch of www.gignow.com, offering rapid onboarding for 400+ roles at a time reflects the growth of the gig economy in the professional services sector.
A new age operating model
From an employer perspective, leveraging gig/freelance workers can be a strategic move, especially when we consider the direct and indirect cost savings associated with this model. Based on data provided by Bureau of Labor Statistics on “Total employer Costs for Employee Compensation for Private Industry Workers”, we see that organisations save up to 30% of labor costs when using gig workers compared to full-time employees.
Pre-pandemic, the cost savings associated with leveraging gig workers was the primary reason organisations were codifying tasks and completing them with the help of outside workers. However, COVID-19 has caused major disruption to the way we work, and workforces are increasingly becoming more dispersed and remote. In this environment, leveraging gig workers and their individual skills will help organisations tap into a broader, global pool of resources to drive innovation and agility, especially as the gig economy extends into white collar industries.
To drive rapid value creation in this evolving ecosystem, organisations will need to think about the relationship with these gig workers on a more strategic level. Organisations need to have the right technology infrastructure in place, along with established processes, to help HR and Payroll teams efficiently and effectively complete the loop of Recruitment –> Onboarding –> Payment –> Offboarding. On the flip side, employers who invest in culture and technology can also mitigate the risk of losing their high potential employees to gig work permanently: 87% of freelancers say they won’t go back to working for anyone.10 If gig workers won’t go back to working for someone else, a negative gig employee journey will create a perpetual struggle to source talent.
Policy changes that will impact the gig landscape
In the U.S., traditional employees have multiple protections like minimum wage and overtime protection under the Fair Labor Standards Act (FLSA), the right to form unions and collectively bargain under National Labor Relations Act, the ability to collect unemployment insurance in case of job loss, workers compensation in case of workplace injury, paid sick and medical leave and employer contributions to Social Security and Medicare. However, these regulations don’t apply to gig workers, who tend to have no minimum wage guarantee, no paid/sick leave, no right to form unions and no recourse in the event of a job loss, injury or wrongful termination.
However, some forward-thinking state and federal governments are now waking up to the realisation that policy changes have not kept pace with the rise of the gig economy, and they are now introducing legislation to level the power dynamic between organisations and individuals. One example is California, which recently introduced new legislation like California Assembly Bill 5 (AB5)11 that redefines the status of employees and contractors, which has been the catalyst for similar laws across North America, with multiple states like New York, New Jersey, Illinois, etc. now introducing legislation to address the needs of gig economy workers.
A similar trend is emerging around the world. Australia requires organisations to pay at least 25% higher wages to workers with irregular hours and no employment guarantee12; Ireland has modified the definition of self-employment13; Dutch government has established a taskforce to study the phenomenon14; while the UK government has stepped up its vigilance with regard to IR-35 regulations.15
Considerations for staying ahead of the evolving gig economy
In summary, here are some key takeaways to help businesses keep ahead of the gig economy’s emerging requirements:
1.The coming decade will bring incremental growth to the gig economy in all sectors
a. Recent events will only accelerate this change
i. Can your processes and systems keep up?
2. If you’re not using gig workers, ask why not?
a. Short term needs for specialist skills may well be more cost effectively met with a gig solution rather than hiring or paying the margin on consultancy providers
i. If your systems are holding you back, maybe it’s time to re-evaluate your systems
3. Building a robust identity and positive corporate culture is needed to prevent a brain drain to gig work
a. The oil industry has structural problems as many senior people have become (lucratively paid) contractors, for example
i. HCM systems need to help measure and boost employee engagement to help retain your key talent
4. Monitoring and complying with rapidly changing legislation require HCM systems to perpetually evolve and remain relevant
a. A SaaS solution will stop you from being left behind, and transfers many of the compliance risks to the software provider
5. The employee lifecycle is going to accelerate as a result of the increase in gig workers
a. Only a single system that incorporates all aspects of human capital management will be able to keep up with this pace
i. Technology like on-demand pay and standardised employee profiles can help organisations streamline internal processes and shorten the employee lifecycle
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